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August 13, 2012

Retirement Plan Participants Guess at Savings Goals

One-third of workers make up estimates for retirement savings, Diversified says

Reports of workers who say they know how much they need to save for retirement may not be entirely accurate. A survey by Diversified, a retirement plan provider, found that over one-third of defined contribution plan participants guessed at how much they need to save.

Diversified surveyed nearly 3,400 people and found 34% “guessed” or “made up” an estimate of how much they would need for retirement. Just 30% have worked with a professional for help setting their goals.

“There’s no reason to guess,” Patricia Advaney, senior vice president of participant solutions for Diversified, said in a statement. “With the abundance of help available—from online tools to guidance to advice—it’s much easier today for plan participants to calculate a retirement income goal, then take appropriate actions to get there.”

Nearly 70% of respondents said their workplace plan was their only or primary account for retirement savings. More than half said they had less than $100,000 saved. More than a third said they had less than $50,000.

Low deferral rates appear to be part of the problem. Over 60% of respondents said they were saving 10% or less of their annual salary, with a full quarter saying they’re saving less than 5%.

“That’s not enough,” Advaney said. “Participants need to be saving a minimum of 10%. While some may view it as a sacrifice now, they’ll undoubtedly be grateful when they realize it will prevent an even greater sacrifice in retirement.”

The good news, though, is that 38% of participants have increased the amount they are saving over the last year. Just 3% said they took a hardship withdrawal, while 11% said they took a loan against their defined contribution plan.